Business Opportunities: With so many different business models and terms flying around these days, understanding what exactly constitutes a business opportunity can be challenging, to say the least. Let’s try this basic analogy in an effort to clear things up, as much as we can anyway:
If a business opportunity were a human, it would always be a mammal, right? But mammals aren’t always human. As we all know, cats, dogs and chimpanzees are also mammals, to name just a few.
And so it goes with business opportunities…
While a business opportunity certainly qualifies as a “Business Opportunity” in the broader sense, so do franchises, distributorships and licensee opportunities, among others.
Okay, so if a particular business opportunity doesn’t claim to be anything other than just that, what exactly is it?
As it is more broadly set forth by the FTC (Federal Trade Commission), the definition of a business opportunity is as follows: “A commercial arrangement where 1) a seller solicits a prospective buyer to enter into a new business, 2) the prospective purchaser makes a required payment, and 3) the seller—expressly or by implication—makes certain kinds of claims.”
If you’re thinking that covers a lot of ground, you’d be right. In fact, it’s a definition that is every bit as much about what it doesn’t say as what it does.
In a nutshell, it’s most important to know this…
Any business model that doesn’t meet the established criteria of a franchise—including most distributorships and licensee opportunities—now pretty much falls under the FTC’s definition of a business opportunity in one way or another, and that also includes most work-from-home opportunities. Moreover, since finalizing its Business Opportunity Rule in late 2011 to protect both business opportunity buyers and sellers, the FTC now requires the latter to provide the former with a one-page disclosure document before the final sale is made.
Additionally, more than two dozen states now have laws that further define what constitutes a business opportunity, all in an effort to regulate their sale and lessen the confusion for buyers when it comes to everything from the necessary startup capital to profitability claims.
As for the main difference between business opportunities and a franchise or other business model, whether it’s an independent sales pro, affiliate partnership, or any other? That essentially lies in the degree of relationship that is maintained on a regular basis over time between the buyer (franchisee) and seller (franchisor), both financially and administratively. Franchisees are, on balance, subject to much greater corporate oversight and control by the franchisor than are owners of business opportunities, with the promise of more substantial and ongoing support and brand recognition in return.
Of course, given the complexity of this issue as well as the FTC’s rules and regulations governing the sale and purchase of business opportunities and franchises, it’s always helpful to seek experienced and knowledgeable legal counsel before making any big decisions. However, if doing so is cost prohibitive, it’s important to know that there are a number of nationwide organizations available to help, including SCORE and the U.S. Small Business Administration’s more than 900 Small Business Development Centers.